Profitable Q4 from Northrop - Analyst Blog

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Los Angeles-based leading defense contractor, Northrop Grumman Corporation ( NOC ), reported impressive fourth quarter 2011 results of $1.85 per share compared with $1.51 in the third quarter of 2010. Northrop results also exceeded the Zacks Consensus Estimate of $1.68 for the quarter. The upside in earnings was attributable to improved performance, lower interest expenses and a lower share count. This was partially offset by lower sales and higher taxes.

Fiscal 2011 earnings came in at $6.49 per share, falling short of the Zacks Consensus Estimate of $7.02 and beating fiscal 2010 earnings of $5.80 per share.

Operational Performance

Sales for the reported quarter decreased 6% to $6.5 billion, from $6.9 billion in the year-ago quarter, and were 2.9% lower than the Zacks Consensus Estimate of $6.7 billion. In the reported quarter, earnings from continuing operations increased to $550 million from $306 million in the fourth quarter of 2010. Net earnings in the reported quarter increased to $548 million from $376 million in the prior-year period.

Fiscal 2011 revenue was $26.4 billion versus the Zacks Consensus Estimate of $26.6 billion. Full year revenue came below the $28.1 billion generated a year ago.

Segment Performance

Aerospace Systems

Aerospace Systems quarterly sales declined 4.1% year over year to $2.6 billion, principally due to lower volume for space systems and manned aircraft programs.  Aerospace Systems' operating income increased 1% to $325 million. Operating margin expanded to 12.7% from 12.1% in the year-ago quarter. Higher operating income and margin rate were driven by improved program performances and lower amortization of purchased intangibles. This was partially offset by lower volume.  

Electronic Systems

Electronic Systems sales declined marginally 0.3% to $1.9 billion. Operating income decreased 5.9% to $256 million. Also, operating margin decreased to 13.7% from 14.5% year over year. The downcast in bottom-line was due to reserves established for contractual matters and 2011 reductions in force. This was partially offset by improved program performance.

Information Systems

Information Systems sales of $1.9 billion were 8.4% lower than the year-ago period, principally due to lower program volume for defense systems and civil systems. Operating income increased 10.1% to $196 million. Operating margin increased to 10.3% from 8.5% year over year. Higher operating income and margin primarily reflect improved program performance and business mix in civil systems. This was partially offset by a decline in sales. 

Technical Services

Technical Services' sales decreased 15.1% to $675 million due to portfolio shaping to improve performance. Operating income increased 14.3% to $56 million. Operating margin increased to 8.3% from 6.2% year over year. The improvement in the bottom line reflects improved performance and contract close-outs on spares and repairs programs in integrated logistics and modernization. 

Financial Condition

Northrop Grumman ended 2011 with cash and cash equivalents of approximately $3.0 billion compared with $3.7 billion at year-end 2010. Cash generated from operations in 2011 totaled $2.1 billion versus cash from operations of $2.5 billion in the year-ago period. Long-term debt remained flat at roughly $3.9 billion at fiscal 2011 end year over year.

Outlook

Northrop Grumman's total order backlog at the end of fiscal 2011 stood at $39.5 billion compared with $46.8 billion at fiscal-end 2010. The lower trend in order backlog is expected to continue in 2012 as some of the prominent programs of the company like the Global Hawk and the F-35 Joint Strike Fighter are coming under the scanner of U.S. budget cuts.

The company affirmed its revenue guidance for fiscal 2012 in the range of $24.7 billion-$25.4 billion. It expects its earnings per share ( EPS ) to be in the range of $6.40 - $6.60.

Los Angeles-based Northrop Grumman Corporation is one of the largest defense contractor in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services.

We maintain our long-term 'Neutral' recommendation on Northrop Grumman. The quantitative Zacks # 3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term. This is in line with its peers like General Dynamics Corporation ( GD ) and Lockheed Martin Corporation ( LMT ).


 
GENL DYNAMICS ( GD ): Free Stock Analysis Report
 
LOCKHEED MARTIN ( LMT ): Free Stock Analysis Report
 
NORTHROP GRUMMN ( NOC ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: EPS , GD , LMT , NOC

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